Reform of the Landlord and Tenant 1954 Act

Introduction

The Landlord and Tenant Act 1954 (the Act) needs little introduction in the commercial property world. Part 2 of the Act governs business tenancies and gives commercial tenants ‘security of tenure’ aka a protected business tenancy. This means that unless the contracting out procedure is followed to the letter, a commercial tenant will have an automatic right to a new lease at the end of the term on substantively the same terms as the old lease unless the landlord successfully opposes the grant of a new tenancy relying on one of the statutory grounds set out in the Act.

The Law Commission of England and Wales (the Commission) has recently published a Consultation Paper (the Paper) on whether the Act remains relevant in today’s market and sets out four different ways in which security of tenure could operate together with the pros and cons of each ‘model’ (one of which is a suggestion of mandatory security of tenure for all commercial tenants). The Paper provides a detailed summary of how the Act currently operates, discusses how business tenancies are negotiated and perhaps most interestingly, analyses the commercial leasehold market.

What is ‘wrong’ with the Act in practice?

The Act is nearly 70 years old and whilst it has been updated over that time, the last significant updates were made almost 20 years ago.  Since the last review the commercial property market has changed because of various factors, including a move towards online shopping and services.  During the consultation process both commercial landlords and tenants have commented that the procedures under the Act for creating a tenancy with or without security of tenure and for renewing a tenancy within the Act are burdensome and costly.  Currently, if the landlord and tenant wish to contract out of the security of tenure given by the Act, they must follow a notice process and where at the end of a tenancy within the Act the parties are unable to agree the terms of the new lease, there can sometimes be a lengthy and costly Court process to determine the lease terms in dispute.

How might the law change?

The Law Commission is considering whether a fundamental change to the security of tenure regime is necessary or desirable.  Currently the Act provides a default position where the tenant is entitled to security of tenure.  The Commission is considering whether it might be possible to move from that default position to a different model and is considering four different models, namely:

• Mandatory security of tenure where the option to contract out is no longer possible
• No security of tenure. This would mean that a business tenant would have no right to renew its tenancy at the end of the contractual term.  Although it would not prevent the parties from agreeing to enter into a new tenancy, arguably the landlord’s negotiating position would be much stronger
• Security of tenure which parties can contract into (as opposed to contracting out of). Under this model the default position is that tenants have no security of tenure and the parties can choose to contract into a statutory scheme if they wish
• Security of tenure which parties can contract out of. Under this model the default position would remain as it is now.  This would not necessarily mean that the current statutory process for contracting out would remain and the Law Commission proposes that there will be a second consultation process seeking views on whether, and if so, how, the detail of the Act might be reformed to allow it to work more efficiently in a modern commercial property market.

The pros and cons of each model are set out in more detail in the Paper.

Summary

The Paper acknowledges that “any change from the current position would be significant and may have a big impact on the commercial leasehold market,” but change is not necessarily a bad thing considering how different the market is now compared with when the Act was enacted. The consultation period will end on 19 February 2025, and it will be interesting to see if there will be a subsequent major shake-up in business tenancies in the not too distant future.

If you have any questions about the topics raised in this article, please get in touch.